Getting peak management performance

IF setting the direction of the business is the domain of strategic planning, then getting the most out of the business is the domain of performance management.

Most chief executives or owners tend to be better at one or the other. Unfortunately, the requirement by shareholders is that the senior management team actually succeeds at both.

There is a range of management technology that has evolved within the arena of performance management, much of which gets confused in terms of its role within the organisation. Performance benchmarking, world’s best practice, the balanced scorecard, key performance drivers and indicators and business process re-engineering are all legitimate tools which can find application within the business.

However, these tools all need to be considered in the context of the central performance challenge faced by the organisation.

So here is a structure to step through a discussion about performance that should go a long way to identifying the performance challenge for the organisation.

Along the way we will highlight the potential role of the tools referenced above so that you can assess whether they might have something to offer.

Board and management perfor-mance workshop: Get a selection of the board and senior management together and have a meeting – allow three hours – focused solely on performance. You will be surprised by how challenging it is to talk purely about performance, because so many meetings among senior management and board members focus on issues that have nothing to do with performance.

Draw up a simple activity chain for your business and then ask yourselves, “within each of the key activities that we undertake, what factors drive good performance?” These drivers should be intuitive and self evident to a large degree (here you are using some very simple key performance driver thinking).

Once you have done this for the total business, try moving it down a level to the business units. Document your output and then ask yourselves, “how might we quantifiably measure these drivers? (Here you are using some very simple key performance indicator thinking.)

Develop a performance model: Having identified what management considers to be the intuitive performance drivers and indicators in the business, it is important to separate fact from fiction.

The way to do this is to develop a performance model. Take a one-year snapshot of the business and model the outcomes the business is seeking by taking into account the drivers identified. This is different from a budget and different from a strategic plan. A performance model shows the impact on the business result from improvements in key performance drivers. No need to over-complicate this step, simply use some internal IT and analytical capability. But one key point – use the quantified indicators (measures) in your model.

Prioritise: You’ve now done the two key things that are most important in identifying the performance challenge for the business – captured management intuition and experience, and challenged that intuition analytically. The key now is to prioritise these drivers. So, using some simple sensitivity analysis, which drivers have the most impact? A golden rule here is that each senior manager, including the CEO, should have no more that six key performance indicators that occupy his or her ongoing close attention.

At this point, certainly use this information to benchmark, against peers or competitors (performance benchmarking) or as part of a global benchmarking effort (world’s best practice). Remember one thing. If possible, benchmark your key performance indicators at the corporate and business unit levels.

Don’t benchmark too wide a range of data which will be incapable of interpretation, let alone action. The output from such a comparative effort may indeed be that your organisation is not doing so well in an area.

Re-design of key processes (business process re-engineering) may have a role to play in improving your performance but it may be that any number of alternative tools might assist.

Again, don’t set out on a re-engineering effort with too wide a scope. Many organisations set lofty goals and get very weighed down with poorly constructed re-engineering efforts.

Develop transparent reporting: The final step in tackling the performance challenge is to upgrade your performance reporting system. There are two key factors here. The first is to refine your reporting so as to focus on those prioritised key performance indicators.

The second is to ensure that your reporting links all the way from the board through the business units. Try to use your performance model to develop this transparency. In terms of reporting, an approach which captures a range of measures (the balanced scorecard) can be very helpful.

Most importantly, ensure that whatever your approach to performance reporting, you are capturing the key performance indicators you have identified.

High performance organisations take this approach further, including the upgrading of executive remuneration based on performance indicators.

Most importantly, make the reporting come to life by focusing on these new indicators in regular board and management meetings. And be prepared to constantly evolve your indicators – it will take most organisations at least a full year of reporting to feel they have it right.

Finally, be prepared to act. Don’t treat the identification of performance drivers as an academic exercise.

Good performance is all about setting a strategic direction and then getting the best out of the organisation along the way. Even in times of limited strategic growth opportunities, the results that can flow from actively driving performance can be significant.

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